Morning Report: Bonds rise on Middle East tensions

Vital Statistics:

 

Last Change
S&P futures 3227 -30.25
Oil (WTI) 63.07 2.04
10 year government bond yield 1.83%
30 year fixed rate mortgage 3.95%

 

Stocks are lower this morning on tensions in the Middle East. Bonds and MBS are up.

 

The US killed an Iranian military commander in Iraq last night, which has sent oil prices up a few bucks, and the 10 year bond yield down to 1.83. The risk-off trade is in  full swing with equity markets falling and S&P futures down a percent. It is too early to tell if the market is overreacting (hint – it usually is) but you might get a window here to pull in some loans.  Might be a good time to review any refis that missed the boat last month.

 

We will get the minutes from the December FOMC meeting around 2:00 pm. Probably wouldn’t be market-moving on a normal day, but with the volatility from the Middle East situation all bets are off. Be careful locking around that time.

 

Foreclosure starts hit a 14 year low, according to Black Knight Financial. In November, 33,500 foreclosures were started, which was a 26% decline on a YOY basis. IIRC, there were weather-related issues that boosted the number last year, so that may be partially driving the drop. We did see a tick up in delinquencies, but they are still down 5% YOY. Prepays are more than double last year, which means the refi boom may still have some legs.

 

The Spring Selling season has historically kicked off right about Super Bowl Sunday. This year, it seems to be accelerating. In fact, some of the homebuilders are noting that traffic remains strong (Toll Brothers noted an acceleration through November and early December). “As shoppers modify their strategies for navigating a housing market that has become more competitive due to rising prices and low inventory, the search for a home is beginning earlier and earlier,” said George Ratiu, senior economist at realtor.com. “With housing inventory across the U.S. expected to reach record lows in 2020, we expect to see this trend continue into the new year.”

 

 

Morning Report: Home Prices rise

Vital Statistics:

 

Last Change
S&P futures 3221 -4.25
Oil (WTI) 61.17 -0.44
10 year government bond yield 1.90%
30 year fixed rate mortgage 3.95%

 

Stocks are lower as we put 2019 into the books. Bonds and MBS are up.

 

The bond markets close at 2:00 pm this afternoon. Most warehouse banks will stop doing wires at that time.

 

It looks like we have a trade deal with China, which should take trade off the front burner for a while.

 

Pending home sales increased 1.2% in November, according to NAR. “Despite the insufficient level of inventory, pending home contracts still increased in November,” said Lawrence Yun, NAR’s chief economist, noting that housing inventory has been in decline for six straight months dating back to June 2019. “The favorable conditions are expected throughout 2020 as well, but supply is not yet meeting the healthy demand.”

 

House prices rose 0.2% MOM and 5% YOY according to the FHFA House Price Index. Separately, the Case-Shiller index rose 0.4% MOM and 2.2% YOY.

 

Wishing you all a prosperous new year. Here is to the roaring 20s

Morning Report: Wages rising, especially at the low end

Vital Statistics:

 

Last Change
S&P futures 3242 4.25
Oil (WTI) 62.17 0.44
10 year government bond yield 1.94%
30 year fixed rate mortgage 3.94%

 

Stocks are higher this morning on no real news. Bonds and MBS are down.

 

The upcoming week should be relatively quiet with New Year’s right in the middle of the week. Tomorrow, the bond market will close at 2:00 pm as well. The jobs report looks like it will be postponed until next week as well.

 

The USMCA (aka NAFTA 2.0) should help ease the housing shortage in the US by allowing more imports of building materials at cheaper prices. “The U.S. residential construction and remodeling industries rely on tens of billions of dollars in building materials sourced from Mexico and Canada annually because America cannot produce enough steel, aluminum and other materials and equipment to meet the needs of the domestic housing industry,” NAHB said in a statement. FWIW, I don’t know that building materials are the issue – lumber prices are down 33% from the peak in 2018 – but I guess every little bit helps. The biggest constraint is labor and land. And those are more about immigration policy and zoning.

 

lumber

 

Wages are increasing, which reflects a tighter labor market. According to the NY Fed, the average wage rose to a record high of $69,181 in November. Further, wages are rising 4.5% for the bottom 25% and only rising 2.9% for the top 25%. So, definitely good news for the first time homebuyer, who is likely younger and lower paid.

 

 

Morning Report: Upbeat housing forecast for 2020

Vital Statistics:

 

Last Change
S&P futures 3252 7.25
Oil (WTI) 61.78 -0.04
10 year government bond yield 1.88%
30 year fixed rate mortgage 3.97%

 

Stocks are higher as investors are largely taking the day off. Bonds and MBS are up.

 

Mortgage applications fell by 5% last week as purchases and refis both fell by the same amount. “The 10-Year Treasury yield increased last week amid signs of stronger homebuilding activity and solid consumer spending, leading to a rise in conventional conforming and jumbo 30-year mortgage rates to just under 4 percent. With this increase, conventional refinance application volume fell 11 percent,” said Mike Fratantoni, MBA Senior Vice President and Chief Economist. “Refinance applications for government loans did increase, even though rates on FHA loans picked up. The change in the mix of business has kept the average refinance loan size smaller than we had seen earlier this year.” 

 

Fannie and Freddie both took up their estimates for 2020 economic growth and housing forecasts. Underpinned by a strong labor market, housing will finally take a leadership position in economic growth. “Housing appears poised to take a leading role in real GDP growth over the forecast horizon for the first time in years, further bolstering our modest-but-solid growth forecasts through 2021,” said Fannie Mae Senior Vice President and Chief Economist Doug Duncan. “In our view, residential fixed investment is likely to benefit from ongoing strength in the labor markets and consumer spending, in addition to the low interest rate environment. Risks to growth have lessened of late, as a ’Phase One’ U.S.-China trade deal appears to be in place and global growth seems likely to reverse course and accelerate in 2020. With these positive economic developments in mind, we now believe that the Fed will hold interest rates steady through 2020.”

 

The actual numbers are here. They see housing starts rising to 1.315 million units, and the 30 year fixed rate mortgage falling to 3.6%. Origination volume is expected to fall slightly to $2.04 trillion from $2.15 trillion in 2019. Purchase volume is expected to increase and refis are forecasted to fall. GDP growth is expected to come in at 1.9%

Morning Report: Inventory shortages hit existing home sales

Vital Statistics:

 

Last Change
S&P futures 3233 7.25
Oil (WTI) 60.5 -0.04
10 year government bond yield 1.90%
30 year fixed rate mortgage 3.97%

 

Stocks are higher as we head into what promises to be a dull week. Bonds and MBS are flat.

 

Markets will be closed on Wednesday, and we will have an early close tomorrow. The only economic numbers will be new home sales and that is it. No Fed-speak, etc.

 

Durable Goods orders fell 2% in November, however, Boeing’s issues are probably coming into play here. Ex-defense and aircraft they rose 0.8%. Capital expenditures rose 0.1%.

 

The third and final estimate for Q3 was unchanged at 2.1%. Consumption spending was revised upward to 3.2% and inflation remained in check, rising 1.6% YOY. FWIW, Q4 GDP estimates are coming in at 1.3% – 2.1%.

 

Personal incomes rose 0.5% in November, while personal consumption rose 0.3%. The income number was much higher than the 0.3% expectation, which shows that people are getting wage increases, especially at the lower income levels.

 

Existing home sales fell 1.7% in November, according to NAR.  The median home price rose 5.4% to 271,300 largely do to constrained inventory, which sat at 3.7 months’ worth of sales. First time homebuyers accounted for 32% of sales. “The consensus was that mortgage rates may rise, but only incrementally,” Yun said. “I expect to see home price affordability improvements, too. This year we witnessed housing costs grow faster than income, but the expectation is for prices to settle at a more reasonable level in the coming year in line with average hourly wage growth of 3% on a year-over-year basis.”

 

Morning Report: Fannie Mae takes up their estimates for 2020

Vital Statistics:

 

Last Change
S&P futures 3195 -3.25
Oil (WTI) 60.88 -0.04
10 year government bond yield 1.93%
30 year fixed rate mortgage 3.96%

 

Stocks are flat this morning on no major news. Bonds and MBS are down.

 

Initial Jobless Claims fell to 234k last week. The prior week had a big jump to over 250k, which really didn’t comport with other labor market data. 234,000 is still above where we were a couple weeks ago, though. As of now, assume this is just noise but it there is going to be a turnaround in the labor market, initial jobless claims is where it first shows up.

 

Fannie Mae has taken up their estimates for housing in 2020. Tuesday’s strong housing starts numbers, combined with what we are hearing out of the homebuilders, indicate that the US housing market will be an “engine of growth” for the economy in 2020. All of the talk about a trade-driven recession was more partisan wishful thinking than anything else. Fannie expects new home sales to increase 12% in 2020, and has taken up their forecast for GDP growth from 2% to 2.2%. “We now expect single-family housing starts and sales of new homes to increase substantially, aided by a large uptick in new construction as builders work to replenish inventories,” Duncan said. “Despite the expected increase in the pace of construction, the supply of homes for sale remains tight and strong demand for housing is continuing to drive home prices higher.”

 

Separately, Fannie is offering early retirement to 25% of its workforce as the company readies itself for sale. “As is common in many American companies, Freddie Mac is offering employees who meet certain age and tenure requirements a voluntary opportunity to retire early. As we prepare for our next chapter, we anticipate this will help realign our workforce to create a company attractive to outside investors as well as current and future employees,” a spokesman for Freddie Mac said in an email statement.

 

Shades of things to come? Sweden is ending its 5 year experiment with negative interest rates. Their central bank expects rates to remain at 0% for the next few years. Global interest rates are rising as a result, with the German 10 year Bund trading at negative 22 basis points, and the Japanese Government Bond trading at a hair under 0%.

 

Home prices rose 5% in November, according to Redfin. Listings fell by 5.9%, while sales increased 3%. “Given that inventory is falling quickly, we’d expect to see even stronger price growth, especially when compared to last year’s soft market,” said Redfin chief economist Daryl Fairweather. “The fact that homes are selling faster indicates that there are buyers ready to pull the trigger and take advantage of low interest rates. If lack of inventory and high demand continues, buyers who take a wait-and-see approach could face less favorable conditions in the spring season like bidding wars and faster price growth.” Note that the biggest gains were in the areas hardest hit by the real estate bust: Detroit, Camden and Bakersfield.

Morning Report: MBA urges tweaks to the CFPB

Vital Statistics:

 

Last Change
S&P futures 3199 3.25
Oil (WTI) 60.61 -0.34
10 year government bond yield 1.89%
30 year fixed rate mortgage 3.96%

 

Stocks are flattish this morning on no real news. Bonds and MBS are flat as well.

 

Mortgage Applications fell by 5% last wee as purchases fell 2% and refis fell 7%. Mortgage rates were mostly unchanged, even as a potential trade deal between the U.S. and China caused rates to inch forward at the end of last week,” said Mike Fratantoni, MBA Senior Vice President and Chief Economist. “With rates showing little meaningful movement, both refinance and purchase activity took a step back. As we move into the slowest time of the year for home sales, purchase application volume is declining but continues to outperform year-ago levels, when rates were much higher. Purchase activity was 10 percent higher than a year ago.”

 

Job openings ticked up to 7.3 million at the end of October, according to the BLS. Retail, financial, and durable goods manufacturing saw the biggest increases. The quits rate was stuck at 2.3%, which is odd given that the labor market is strong and wages are increasing.

 

iBuying, which means buying or selling property via platforms like Zillow, Opendoor or Offerpad accounted for 10% of all sales in several MSAs. These platforms permit the buyer and seller to bypass the traditional realtor and sell their properties directly to the company sponsoring the exchange. Does this save the seller money, since they aren’t paying realtor commissions? Not really. Zillow charges a 7.5% fee on average, which is higher than the 6% in realtor commissions a seller typically pays. That extra 1.5% is a convenience fee – you don’t have to stage the property, you get a non-contingent offer within a few days, and can sew the process up in a week or two.

 

The MBA and NAR filed amicus briefs urging the Supreme Court to maintain the CFPB, but to remove the language that says a Director can only be removed for cause. “When determining how to remedy an unconstitutional statute, courts seek to give effect to congressional intent and to avoid unnecessary disruption,” the brief said. “Striking down the entirety of the CFPA, or declaring it unconstitutional without addressing severance, would eliminate or call into question the legitimacy of the detailed, technical regulations that govern past and future real estate finance transactions, not to mention the authority of a federal agency responsible for enforcing a host of consumer protection laws. Such an outcome would immediately cause significant disruption to the American economy, overturning regulatory guideposts, upsetting settled expectations, and creating substantial uncertainty in our housing markets, all in contravention of Congress’s clearly expressed intent to promote financial stability. The Court should avoid causing such harm. Accordingly, in the event that the Court finds the for-cause removal provision unconstitutional, it should sever that provision from the statute.”

 

After yesterday’s blockbuster housing starts data, Fannie Mae took up their estimates for homebuilding in 2020. They anticipate housing starts will increase by 10% and housing will be the sector that leads the economy going forward.

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